Petrobras Plans Four-Part Debt Sale to Double Oil Output

Posted on January 31, 2012

Petroleo Brasileiro SA (PETR4), Brazil’s state-controlled oil producer, plans to sell dollar bonds for the first time since issuing $6 billion in debt a year ago.

Petrobras, the biggest emerging-market issuer of overseas notes in 2011, plans to sell new three- and five-year debt while issuing more of its bonds maturing in 2021 and 2041 as soon as tomorrow, according to a person familiar with the plan who asked not to be identified because terms aren’t set.

The three-year debt may sell to yield about 280 basis points above similar maturity U.S. Treasuries, while the yield on the five-year debt may be 295 basis points higher, the person said. The spread on the 2021 and 2041 bonds may be about 300 basis points.

Petrobras is raising funds outside of Brazil to help finance $224.7 billion of investments in the five years through 2015 to develop oil discoveries and more than double output by 2020. The Rio de Janeiro-based company also sold bonds in euros and pounds last year, raising about $9.6 billion in 2011, according to data compiled by Bloomberg.

“Petrobras is a very well known name, a benchmark name, and the markets are doing well with a lot of inflows, so there’s no reason it shouldn’t do well provided the company’s not too aggressive on the pricing,” said Paul Marty, an analyst at Spread Research. “Investors take on the execution risk associated with the capex program, which may yield some very significant benefits in the future.”

The average yield of investment-grade companies in emerging markets has fallen 31 basis points, or 0.31 percentage point, over the past two months to 4.92 percent, according to a JPMorgan Chase & Co.’s CEMBI Index. Yields on Petrobras’s securities due January 2021 pay 4.69 percent, Bloomberg data show.

The company is rated A3 by Moody’s Investors Service, four steps above junk, and BBB by Standard & Poor’s and Fitch Ratings, the second lowest level of investment grade.